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U.S. Corporate Tax Revenue Cited as Among Lowest in OECD

Posted on Feb. 12, 2020

Corporate tax collections in the United States were 1.1 percent of GDP in 2019, the second lowest among countries in the OECD, according to testimony at a House Ways and Means Committee hearing.

At the February 11 hearing, titled “The Disappearing Corporate Income Tax,” Harvard economics professor Jason Furman testified that the low corporate tax collections are a contributing factor to the United States’ overall low level of federal revenue.

Corporate tax revenues are at a historically low level, and “some large corporations pay zero year after year,” said Ways and Means Chair Richard E. Neal, D-Mass. “It is therefore not surprising that we collect less corporate tax revenue than all but one of the other OECD nations.”

Republicans countered that both corporate tax revenue and U.S. competitiveness are on the upswing.

Multiple Causes 

Witnesses cited a range of factors to account for the low corporate revenue collections, from provisions in the Tax Cuts and Jobs Act to a lack of IRS funding.

Fordham law professor Rebecca Kysar testified that the TCJA’s international provisions did little to lessen incentives for shifting profits offshore.

“The international base-broadening provisions were the quid pro quo for the low corporate tax rate,” Kysar said. “That they did not alter the status quo with regard to profit shifting makes for a costly trade.”

She added that because the law was passed hastily, its implementation wasn’t always clear. That left room for lobbyists to influence Treasury in setting TCJA implementation rules, Kysar said, noting that Treasury officials often met with representatives from corporations before proposed regs were issued.

Kysar added that political influence inside Treasury resulted in some TCJA regulations going beyond what the text of the legislation authorized, including in the high-tax exception elections for global intangible low-taxed income.

IRS Cuts

Chye-Ching Huang of the Center on Budget and Policy Priorities centered her testimony on how cuts to the IRS’s enforcement operations “make life easier” for tax evaders and avoiders, including large corporations and businesses.

“Large corporations can pour resources into tax planning, litigation, and lobbying to try to shift the boundary between permissible tax avoidance and unlawful tax evasion — and to stretch out their cases as long as they can — but budget cuts have hampered the IRS’s ability to match them,” Huang said.

Huang noted that the audit rate for corporations with more than $1 billion in assets has decreased by 51 percent since 2010.

The Trump administration’s proposed fiscal 2021 budget, released February 10, would give $5.07 billion to IRS enforcement operations, about 1.2 percent more than what was provided in fiscal 2020.

Republicans Stand by Corporate Rate

Ways and Means ranking member Kevin Brady, R-Texas, said the whole premise of the hearing was false because corporate revenue is growing.

Brady faulted revenue comparisons with other countries, saying they don’t account for the large number of passthrough businesses in the United States.

Douglas Holtz-Eakin, president of the American Action Forumtestified that although the TCJA wasn’t perfect, its lowering of the corporate rate made U.S. investment more attractive to businesses.

Republican lawmakers insisted that in their districts, business growth was positive. Several said the corporate rate needs to be lower still to keep corporations from moving abroad.

“If at some point you’re not competitive, people are going to move,” said Rep. Vern Buchanan, R-Fla. “They’ve got options, and they’re going to go other places.”

“Six countries have moved to lower their corporate tax rates since we passed the TCJA,” Brady added.

Democrats, however, said that the corporate tax rate as it stands is too low. “The only reason we ended up at 21 percent was because Trump started his opening bid at 15 percent,” Ways and Means Committee member Ron Kind, D-Wis., told Tax Notes.

But Democrats have not yet agreed how high they need to go.  

“I don’t think there has been a final resolution as to what that rate should be, but it certainly isn’t 21 percent,” taxwriter Lloyd Doggett, D-Texas, told Tax Notes.

Several Democrats at the hearing pointed to the 28 percent rate during the Obama administration. But an increase in the rate won’t be an easy sell in Congress. “Anything we do to correct the many shortcomings of the Republican tax law will be attacked as the largest tax increase in history,” Doggett said.

An easier fix to shore up revenue and prevent income shifting among multinationals would be to strengthen the country’s international tax laws, Doggett said. “I think correcting some of the provisions like GILTI and [foreign-derived intangible income] are very easy to justify. All the evidence is on that side, but mustering the political will to do it is what’s very difficult,” he said.

Jad Chamseddine contributed to this article.

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